#THE INTEREST ACT, 1978 
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##ARRANGEMENT OF SECTIONS 
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SECTIONS 
1. Short title, extent and commencement. 
2. Definitions. 
3. Power of court to allow interest. 
4. Interest payable under certain enactments. 
5. Section 34 of the Code of Civil Procedure, 1908 to apply. 
6. Repeal and saving.

 
 
#THE INTEREST ACT, 1978 

##ACT NO. 14 OF 1978 

[31st March, 1978.] 

An Act to consolidate and amend the law relating to the allowance of interest in certain cases. 

  BE it enacted by Parliament in the Twenty-ninth Year of the Republic of India as follows:— 

1. **Short title, extent and commencement.**—(1) This Act may be called the Interest Act, 1978. 

(2) It extends to the whole of India except the State of Jammu and Kashmir[^1]. 

(3) It shall come into force on such date as the Central Government may, by notification in the 
Official Gazette, appoint. 

2. **Definitions.**—In this Act, unless the context otherwise requires,— 

  (a) “court” includes a tribunal and an arbitrator; 

  (b) “current  rate  of interest”  means the  highest  of the  maximum  rates  at  which interest  may  be 
paid  on  different  classes  of  deposits  (other  than  those  maintained  in  savings  account  or  those 
maintained  by  charitable  or  religious  institutions)  by  different  classes  of  scheduled  banks  in 
accordance with the directions given or issued to banking companies generally by the Reserve Bank 
of India under the Banking Regulation Act, 1949 (10 of 1949). 

  *Explanation.*—In  this  clause,  “scheduled  bank”  means  a  bank,  not  being  a  co-operative  bank, 
transacting any business authorised by the Banking Regulation Act, 1949 (10 of 1949); 

  (c) “debt”  means  by  liability  for  an  ascertained  sum  of  money  and  includes  a  debt  payable  in 
kind, but does not include a judgment debt; 

  (d) “personal injuries” includes any disease and any impairment of a person’s physical or mental 
condition; 

  (e) all other words and expressions used herein but not defined and defined in the Reserve Bank 
of India Act, 1934 (2 of 1934), shall have the meanings respectively assigned to them in that Act. 

3. **Power of court to allow interest.**—(1) In any proceedings for the recovery of any debt or 
damages or in any proceedings in which a claim for interest in respect of any debt or damages already 
paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or 
to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, 
for the whole or part of the following period, that is to say,— 

  (a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, 
then, from the date when the debt is payable to the date of institution of the proceedings; 

  (b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard 
in a written notice given by the person entitled or the person making the claim to the person liable that 
interest will be claimed, to the date of institution of the proceedings: 

Provided that where the amount of the debt or damages has been repaid before the institution of the 
proceedings, interest shall not be allowed under this section for the period after such repayment. 

(2) Where, in any such proceedings as are mentioned in sub-section (1),— 

  (a) judgment, order or award is given for a sum which, apart from interest on  damages, exceeds 
four thousand rupees, and 

  (b) the sum represents or includes damages in respect of personal injuries to the plaintiff or any 
other person, or in respect of a person’s death, 

then, the power conferred by that sub-section shall be exercised so as to include in that sum interest on 
those  damages  or  on  such  part  of  them  as  the  court  considers  appropriate  for  the  whole  or  part  of  the 
period from the date mentioned in the notice to the date of institution of the proceedings, unless the court 
is satisfied that there are special reasons why no interest should be given in respect of those damages. 



[^1]. Vide Notification No. S.O. 3912 (E), dated 30th October, 2019, this Act is made applicable to the Union territory of  Jammu 
and Kashmir and the Union territory of Ladakh. 



(3) Nothing in this section,— 

  (a) shall apply in relation to— 

     (i) any  debt  or  damages  upon  which  interest  is  payable  as  of  right,  by  virtue  of  any 
agreement; or 

     (ii) any  debt  or damages  upon  which payment  of interest is barred,  by  virtue of  an express 
agreement; 

  (b) shall affect— 

     (i) the compensation recoverable for the dishonour of a bill of exchange, promissory note or 
cheque, as defined in the Negotiable Instruments Act, 1881 (26 of 1881); or 

     (ii) the provisions of rule 2 of Order II of the First Schedule to the Code of Civil Procedure, 
1908 (5 of 1908); 

  (c) shall empower the court to award interest upon interest. 

4. **Interest payable under certain enactments.**—(1) Notwithstanding anything contained in section 
3, interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of 
law or usage having the force of law. 

(2) Notwithstanding  as  aforesaid,  and  without  prejudice  to  the  generality  of  the  provisions  of  sub-
section (1), the court shall, in each of the following cases, allow interest from the date specified below to 
the  date  of  institution  of  the  proceedings  at  such  rate  as  the  court  may  consider  reasonable,  unless  the 
court is satisfied that there are special reasons why interest should not be allowed, namely:— 

  (a) where  money  or  other  property  has  been  deposited  as  security  for  the  performance  of  an 
obligation imposed by law or contract, from the date of the deposit; 

  (b) where  the  obligation  to  pay  money  or  restore  any  property  arises  by  virtue  of  a  fiduciary 
relationship, from the date of the cause of action; 

  (c) where money or other property is obtained or retained by fraud, from the date of the cause of 
action; 

  (d) where the claim is for dower or maintenance, from the date of the cause of action. 

5. **Section 34 of the Code of Civil Procedure, 1908 to apply.**—Nothing in this Act shall affect the 
provisions of section 34 of the Code of Civil Procedure, 1908 (5 of 1908). 

6. **Repeal and saving.**—(1)  As from the  commencement  of this  Act, the Interest 
Act, 1839 (32 of 1839) and any other law corresponding thereto in force in any State immediately before 
such commencement shall stand repealed. 

(2)  The  provisions  of  this  Act  shall  not  apply  to  any  suit  or  other  legal  proceeding  pending  at  the 
commencement  of  this  Act  and  the  provisions  of  the  corresponding  law  applicable  immediately  before 
such commencement shall, notwithstanding the repeal of such law by sub-section (1), continue to apply to 
such suit or other legal proceeding. 

(3) The  mention  of  particular  matters in  sub-section (2)  shall  not  be  held to  prejudice  or  affect  the 
general application of section 6 of the General Clauses Act, 1897 (10 of 1897), with regard to the effect of 
repeal.